As I write this, congress is still mulling over the latest bailout of their buddies in high finance. At last report, the sum being considered was still near $700,000,000,000.00. This would be added to our children's legacy along with the over $1,000,000,000,000.00 already thrown at the problem. We have seen the talking heads proudly proclaiming “Financial Peace in our Time” and extolling their own efforts in dealing with the financial crisis.
Thanks For The Memories
After weeks of financial market upheaval, and the nationalization of the American economy, another chapter of the sorry saga is set to open. Congress, in its infinite fiscal responsibility, has decided to throw another $700 billion at the symptoms and continue to reward or ignore the root cause. While the American taxpayer, both living and not yet born, are being forced to pay for the crimes of congress' cronies and donors.
The corporate scalliwags that created the sub-prime debacle appear to be not only free to spend their millions in severance pay, but just as free to go right out and find another creative way to fleece the tax paying public. Our much beloved leadership seems quite content to allow the CEO's, corporate boards, accounting firms, and regulators that brought about this disaster go about their lives without so much as a “Ooops, My bad!”
To date there has not been a single injunction from the SEC against any of the ,let's say creative accounting, that issued from the institutions that WE are now expected to pay for. These stalwarts of high finance leveraged a $1.4 trillion high risk series of instruments into what is now a $368 trillion screw up. Let me repeat that, what was a $1.4 trillion high risk debt business has been creatively leveraged into a $368 trillion boondoggle. Some estimates place the total debt problem at as much as $600 trillion, but realistically only part of that derivative asset base is attributable to our current difficulties. I have included only the credit default swaps and the interest rate default swaps that are at the core of the financial meltdown.. So far.
Say What?
The actual depth of the problem is never mentioned in relation to the supposed “fixes” proposed for the American taxpayer to pay for. On a global level, this is a problem created by greed and concealed by avarice on an almost incomprehensible scale. In the interest rate swaps alone, the load is over $310 trillion with a market value of just over $6 trillion. That's right. A 50 to 1 debt to asset ratio. That's the power of leverage, these corporate nincompoops repackaged, reinvented and resold the same bad debt all over the world to the point that the assets can never recoup the amount of debt created from them.
The credit default swaps stand at about $60 trillion outstanding with just over $2 trillion in market value. That's a 30 to 1 debt to asset ratio. How many times did they sell this pig?
If you sell your car to a neighbor for $20 and to another for $20 more, and another, and another. Has the underlying asset, the car, increased in value with each sale in order to cover the debt created from it's repeated sale?
I am not saying that all of this is on American's shoulders, there were plenty of foreign institutions engaging in the practice as well. But we are the big dog on the block, we led the way in creative debt bundling and even if our part is just 25%, that is a whole lot more than what we have been told. And far,far more than $700 billion is going to fix.
Naked Shorting
In a previous article I mentioned naked shorting, the sale of stock one does not own and does not intend to borrow or replace. I described why naked shorting these huge financial companies stock would be exceedingly difficult due to the nature of the companies themselves. The default swap market that destroyed these companies is another example of who the masters of selling things that do not exist truly are. In order to create such wide spreads in the debt to asset ratio's and maintain the fiction of intrinsic value long enough to engineer a disaster of this magnitude takes a level of skill and deception that few outside the board rooms of the companies involved could ever hope to master.
This problem has been looming on the horizon for several years. The magnitude of the inequity in the sector has been known since at least November of 2007, when the global derivatives report was being prepared for release. Yet, here we are, over $1 trillion into bailing out these thugs, anxiously awaiting another $700 billion in taxpayer “assistance” to the same brainiacs that created the problem. And not a single indictment, allegation or apology. Not one mention of the depth and breadth of the hole we are in from congress, the SEC, the Treasury Department. Just more debt being saddled upon our grandchildren with little hope of recouping a single penny.
A Culture of Nanny Government
We, the people, are supposed to be the boss. Every few years we are supposed to elect a leadership that watches out for our great and prosperous nation. These representative's, senators and the President are tasked with not only the protection of our borders but our interests as well. Two of these tasks are the regulation of the currency and the regulation of trade. In my estimation our leaders have failed miserably on both scores.
One of the requirements we, the people, have is to be an informed electorate. In the absence of a nation comprised of economists, CPA's, and financial managers, we must rely on our elected leaders and a free and unbiased press for information that isn't readily available in our day to day lives. While an auto mechanic or a carpenter are just as vital to the American economy as a Senator or bank CEO, that auto mechanic and that carpenter are the people that ultimately will pay for the failings of the Senator and the bank CEO.
The Senator, or Representative or Cabinet member will face his Waterloo soon enough. Not only for allowing this debacle to grow to its current size, but also for forcing the American people to pay for their cronies crimes. Make no mistake, this is nowhere near over. A $700 billion band aid is no more likely to stem the fiscal hemorrhaging than did the first $1 trillion we were forced to give away. The effects of this will last far longer than the next election cycle.
Even now, we are not told the whole story. On the eve of yet another injection of deficit funded corporate welfare, they do not tell us the complete story. Perhaps they think that auto mechanics, carpenters and home makers are not smart enough to understand the depths of such an issue. A nanny mentality from the press and our government is a disservice to this nation and its continued practice is unacceptable in a free society. We, the people, are a nation of doers, a nation of dreamers, a nation of neighbors that look out for one another. We should expect no less from our elected leadership and our nations press. We have been badly served by both in this crisis, let us hope that this does not become the norm.
